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Has Higher Household Indebtedness Weakened Monetary Policy Transmission?

Author

Listed:
  • Gaston Gelos

    (International Monetary Fund and CEPR)

  • Federico Grinberg

    (International Monetary Fund)

  • Shujaat Khan

    (International Monetary Fund)

  • Tommaso Mancini-Griffoli

    (International Monetary Fund)

  • Machiko Narita

    (International Monetary Fund)

  • Umang Rawat

    (International Monetary Fund)

Abstract

Has monetary policy been less effective since the global financial crisis because of deteriorating household balance sheets? This paper examines the question using household data from the United States. It compares the responsiveness of household consumption to monetary policy shocks in the preand post-crisis periods, relating changes in monetary transmission to changes in household indebtedness and liquidity. The results show that the responsiveness of household consumption has diminished since the crisis. However, household balance sheets are not the culprit. More indebted and less liquid households are the most responsive to monetary policy, and their share in the population grew. The decline in the consumption response does not seem to be attributable to households’ decreasing interest rate exposure, either.

Suggested Citation

  • Gaston Gelos & Federico Grinberg & Shujaat Khan & Tommaso Mancini-Griffoli & Machiko Narita & Umang Rawat, 2024. "Has Higher Household Indebtedness Weakened Monetary Policy Transmission?," International Journal of Central Banking, International Journal of Central Banking, vol. 20(1), pages 325-371, February.
    • Handle: RePEc:ijc:ijcjou:y:2024:q:1:a:8
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    References listed on IDEAS

    as
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    3. Refet S Gürkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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